AT&T's Subscriber Growth Nears Zero

NEW YORK ( TheStreet) -- Apple's ( AAPL) iPhone made all the difference for AT&T ( T) last quarter.

As big phone rivals AT&T and Verizon ( VZ) square off this week on first-quarter earnings, Wall Street awaits the numbers from Ma Bell's wireless unit now that the iPhone sells at Verizon.
AT&T

Analysts expect that the loss of Apple iPhone exclusivity took the steam out of AT&T's wireless growth. The number of new so-called post-paid contract customers AT&T added in the first quarter fell uncomfortably close to zero, according to at least one analyst.

How close? UBS analyst John Hodulik had been calling for a net loss of 100,000 customers until he recently boosted his post-paid net add number for AT&T to 50,000. Most of the impact came as sales were siphoned off to the Verizon iPhone.

But what AT&T lost in new iPhones, it partially made up for in old iPhones. Thanks to the recent heavy promotion of the $49 iPhone 3GS, AT&T avoided an alarming net loss of customers, said Hodulik.

If Hodulik's 50,000 target is accurate, it would be 90% below the normal quarterly net add number of 538,250 post-paid customers that AT&T averaged last year.

Meanwhile, over at Verizon, analysts are expecting strong subscriber gains, not just from the iPhone but also from the popularity of the Google ( GOOG) Android-powered HTC Thunderbolt.

The street consensus calls for Verizon to have added 900,000 post-paid customers, fueled by an estimated 2.9 million iPhone sales, according to a preview report by Morgan Stanley's Simon Flannery Monday.

But the loss of iPhone exclusivity doesn't fully explain the slowdown at AT&T.

While record numbers of U.S. customers are drawn to pricey smartphones, there's also been a strong shift to lower-cost prepaid services.

Hodulik points to the rising popularity of prepaid service and its corrosive effect on the post-paid market. Cheap phones and even cheaper month-to-month service plans have been catching on as people seek alternatives to hefty two-year service contracts.

Hodulik predicts that, industry wide, prepaid will be 65% of the total net new customers in the first quarter, up from 51% in the fourth quarter.

Beneficiaries of this trend are outfits like MetroPCS ( PCS), which Hodulik expects may have signed on 500,000 prepaid customers in the most recent quarter.

The threat of a massive customer exodus has prodded AT&T to make a big $39 billion takeover deal for No. 4 rival T-Mobile last month.
Verizon

Investors cheered the move, which would allow AT&T to remove a price-cutting competitor and retake the top wireless slot. AT&T shares are up 17% over the past year, but they lag behind the 27% increase by Verizon over the same period.

As far as the first quarter numbers, analysts are expecting AT&T to post an adjusted profit of 57 cents a share on $31.3 billion in sales, Wednesday before the bell. Verizon is expected to report earnings Thursday of 51 cents a share on $26.9 billion in revenue, according to Yahoo! Finance.

--Written by Scott Moritz in New York.

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